Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q2 2010 Earnings Presentation
29 slides from Encompass Health's earnings presentation, Aug 2, 2010
Slide 1: Second Quarter 2010 Earnings Call Supplemental Slides
Second Quarter 2010 Earnings Call Supplemental Slides
Slide 2: Forward-Looking Statements
Page 2 The information contained in this presentation includes certain estimates, projections and other forward- looking information that reflect our current views with respect to future events and financial performance. These estimates, projections and other forward-looking information are based on
Slide 3: Q2 2010 Highlights
Q2 2010 Highlights High-Quality Care. Revenues (Q2 2010 vs. Q2 2009) Expenses (Q2 2010 vs. Q2 2009) Adjusted Consolidated EBITDA. Adjusted Income per Diluted Share... Net Cash Provided by Operating Activities Adjusted Free Cash Flow... Debt Outstanding, Liquidity and Swap: 2010 Guidance — Revised .
Slide 4: Q2 2010 Highlights
Page 4 Q2 2010 Highlights ü Discharge growth of 2.2% – Same-store discharge growth = 1.3% – Sequential discharge growth = 3.6% ü Revenue growth of 3.2% – Driven by pricing and volume growth ü Adjusted Consolidated EBITDA growth of 10.3% – Continued emphasis on quality outcomes – Continued discipline
Slide 5: High-Quality Care
Page 5 FIM Gain LOS Efficiency LOS Efficiency = Functional gain divided by length of stay Source : UDSmr Database - On Demand Report: Q2 2010 Report FIM Gain = Change in Functional Independent Measurement (based on an 18 point assessment) from Admission to Discharge ** Average = Expected, Risk-adjus
Slide 6: Revenues (Q2 2010 vs. Q2 2009)
Page 6 Revenues (Q2 2010 vs. Q2 2009) • Inpatient revenue growth was driven by : – 2.25% Medicare price increase – Discharge growth of 2.2% quarter over quarter • Outpatient revenue declined primarily as a result of six fewer outpatient rehabilitation satellite clinics quarter over quarter.
Slide 7: Expenses (Q2 2010 vs. Q2 2009)
Page 7 Expenses (Q2 2010 vs. Q2 2009) • Disciplined expense management • Solid labor productivity as reflected in lower EPOB
Slide 8: Adjusted Consolidated EBITDA
Page 8 Adjusted Consolidated EBITDA (1) (1) Reconciliation to GAAP provided on slides 28 through 29. In arriving at Adjusted Consolidated EBITDA, the following were excluded from line items : (2) Stock-based compensation expense of $4.0, $2.9, $7.8 and $6.6 million, respectively, reduced general and
Slide 9: Adjusted Income per Diluted Share
Page 9 Adjusted Income per Diluted Share (1) (1) Reconciliation to GAAP provided on slides 28 through 29. Adjusted EPS Change Q2 6 Months +$0.05 +$0.13 +12.8% +16.5% Improvements driven by : • Higher Adjusted Consolidated EBITDA • Lower interest expense Offset by : • 5 million shares issued on Septe
Slide 10: Net Cash Provided by Operating Activities
Page 10 (1) Notes on page 29. Net Cash Provided by Operating Activities
Slide 11: Adjusted Free Cash Flow
Page 11 Adjusted Free Cash Flow
Slide 12: Debt Outstanding, Liquidity and Swaps
Page 12 Year-End 2010 Goal: 3.75x to 4.00x Debt to EBITDA 6.3x 6.3x 5.3x 4.3x 4.1x (1) ($ Billions) Liquidity Debt Outstanding, Liquidity and Swaps (1) Based on trailing, four-quarter Adjusted Consolidated EBITDA of $400.7 million; reconciliation to GAAP provided on slides 28 and 29. (2) Cash settle
Slide 13: 2010 Guidance - Revised
Page 13 2010 Guidance - Revised (1) Reconciliation to GAAP provided on slides 28 and 29. (2) Adjusted income from continuing operations per diluted share. Considerations : ü IT “pilot” investment ü Integration of acquisitions ü Start-up costs at two new hospitals ü TeamWorks investment ü 2 nd half 2
Slide 14: Business Outlook
Page 14 Business Outlook Business Model: • 5 - 8 % annual Adjusted Consolidated EBITDA growth (1) • 15 - 20% annual Adjusted EPS growth (1) (2) Strategy (1) Reconciliation to GAAP provided on slides 28 and 29. (2) Adjusted income from continuing operations per diluted share. (3) Exclusive of any E&Y
Slide 15: Appendix
Page 15 Appendix
Slide 16: Future Regulatory Risk
Page 16 Future Regulatory Risk IRF SNF LTCH HH 1. Re-basing payment system No Yes; RUGS IV and MDS 3.0 being implemented FY 2011/2012 No Yes; would be required as part of PPACA starting in 2014 2. Major outlier payment adjustments No No Yes; will occur when MMSEA relief expires (short stay outliers)
Slide 17: Cost-Effective Care
Page 17 Freestanding (2) Units (2) Total HealthSouth Hospitals (2) Number of IRFs 228 953 1,181 94 Average # of Discharges per IRF 649 237 316 822 Outlier Payments as % of Total Payments 1.32% 4.08% 3.00% 0.43% Average Estimated Total Payment per Discharge for FY 2010 $16,452 $16,741 $16,626 $15,996
Slide 18: Readmission Rates
Page 18 0 Readmission Rates Note: Use of home health care and hospice is based on care that starts within three days of discharge. Other PAC care starts within one day of discharge. Home health use includes episodes that overlap an inpatient stay. Source : Medicare Payment Advisory Commission, “A Da
Slide 19: Portfolio Growth
Page 19 Organic Growth • Capacity Expansions : Ø ~ 100+ beds in 2010 • De novos : Acquisitions/Joint Ventures Portfolio Growth 6 - 7 years (2) 2 - 4 years (1) (1) Assumes average investment per bed: $100K to $250K. (2) Assumes average investment per bed: ~ $450K. 6 - 7 years Target Cash pay-back
Slide 20: Discharge Growth - Trend
Page 20 (1) Data provided by UDS MR , a data gathering and analysis organization for the rehabilitation industry; represents ~ 65-70% of industry, including 89 HealthSouth sites. (2) Includes 89 consolidated HealthSouth inpatient rehab hospitals and six long-term acute-care hospitals. Discharge Grow
Slide 21: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q2 ai Increase/ Revenues (millions) 2010 2010 (Decrease) Inpatient $ 456.2 $ 451.8 1.0% Outpatient and other 40.7 39.2 3.8% Consolidated net operating $ 496.9 $ 491.0 1.2% (Actual Amounts) Discharges 29,016 27,998 3.6% Net patient revenue / discharge $ 15,722 $ 16,13
Slide 22: Revenues & Expenses (6 Months 2010 vs. 6 Months 2009)
Revenues & Expenses (6 Months 2010 vs. 6 Months 2009) 6 Months 6 Months Increase/ Revenues 2010 2009 (Decrease) Inpatient $ 908.1 $ 868.5 46% Outpatient and other 79.8 86.0 (7.2%) Consolidated net operating $ 987.9 $ 954.5 3.5% (Actual Amounts) Discharges 57,014 56,078 1.7% Net patient revenue / dis
Slide 23: Payment Sources
Page 23 Payment Sources (1) Managed Medicare revenues represent ~ 8%, 9%, 8%, 8% and 8% of total revenues for Q2 2010, Q2 2009, 6 months 2010, 6 months 2009 and 2009, respectively, and are included in “Managed care and other discount plans.”
Slide 24: Operational and Labor Metrics
Page 24 Operational and Labor Metrics (1) (2) Represents discharges from HealthSouth’s 92 consolidated hospitals and 6 LTCHs in Q2 2010 and 90 consolidated hospitals and 6 LTCHs prior to Q2 2010. (3) Excludes approximately 400 full-time equivalents, who are considered part of corporate overhead with
Slide 25: Debt Profile
Page 25 = Term Loan maturities = 10.75% Fixed = 8.125% Fixed = Capital leases & term loan amortization 3 month LIBOR plus 225 bps 3 month LIBOR plus 375 bps Call Schedule Date Price June 15, 2011 105.375 June 15, 2012 103.583 June 15, 2013 101.792 June 15, 2014 100.000 and thereafter $400.0
Slide 26: Non-Operating Cash/Tax Position
Page 26 Non-Operating Cash/Tax Position Cash Refunds as of June 30, 2010 • Federal tax recoveries virtually complete. • State tax refunds in progress. – Approx. $3.1 million received in Q2 2010. – Approx. $5.7 million net receivable on the balance sheet. Future Cash Tax Payments • Expect to pay abou
Slide 27: Outstanding Share Summary
Page 27 Outstanding Share Summary (Millions) Notes : (1) Does not include 2.0 million warrants issued in connection with a January 2004 loan repaid to Credit Suisse First Boston. In connection with this transaction, we issued warrants to the lender to purchase two million shares of our common stock.
Slide 28: Reconciliation of Net Income to Adjusted Income and Adjusted Consolidated EBITDA
Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted Consolidated EBITDA (1) (3) (4) ‘Taree Months Ended June 20, ‘Six Months Ended June 30, Yeor Ended December 31, WO _PorShare 7009 __PorShare _ 7010 PerShare 2009 _‘PerShare 2009 ‘Per Share Ti millions, Except per
Slide 29: Reconciliation Notes
Page 29 Reconciliation Notes 1. Adjusted income from continuing operations and Adjusted Consolidated EBITDA are non-GAAP financial measures. The Company’s leverage ratio (total consolidated debt to Adjusted Consolidated EBITDA for the trailing four quarters) is, likewise, a non-GAAP financial measur